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Paying Foreign Employees Across Different Countries

As small businesses expand into emerging markets, they need to ensure their foreign employees get paid, no matter how far-flung their locale.

Here are several tips for taking a cohesive approach to international compensation and payroll.

Plan for Integrated Expansion

Jim Medlock, director of education and training at the American Payroll Association based in San Antonio, recommends looking at the payroll process. Systems are able to parse regional payroll data and then "accumulate everything back in the company so when an executive asks 'How many people do we have on the payroll?' they can actually answer that question," Medlock says.

In many countries it’s customary to pay employees monthly rather than bi-weekly.

Next, it's important to understand a country's rules and cultural nuances around payroll, says Alison Ward, a payroll expert at The Chartered Institute of Payroll Professionals, based in Solihull, England. For example, in Japan, it's a cultural taboo to discuss wages in a public setting. Or in Portugal, overtime is rare, and in some cases restricted by law. Also, in many countries it's customary to pay employees monthly rather than bi-weekly.

Business owners can also seek the expertise of an accounting firm that has local affiliate offices to learn more. When applicable, Ward recommends tapping local payroll partners to learn about the written and unwritten rules.

Consider Exchange Rates and the Budget

The employer's budget is always a key consideration when implementing payroll systems in international markets. For example, a small business may not be able to justify the cost of a payroll staffer. However, the business may be able to afford an administrator who has multiple functions, including payroll. Or a company might consider outsourcing payroll functions to either a large payroll provider, such as ADP, Northgate Arinso or Ceridian. Ward says a small business might find big cost savings if it deals directly with a smaller vendor when making international payments.

Currency Converter

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Global payroll invariably brings up the issue of foreign currency conversion. Ward suggests developing a payroll budget ahead of time and transferring it in a single lump sum to a foreign bank at a time when the currency relationship is most advantageous. "Remember some countries have controls on the amount of money transferred because of money laundering issues," Ward says.

Business owners can sign up for email market-rate alerts that notify them when preferred exchange rates are available through an online foreign exchange service. For example, if a delicatessen in England needs to send a payment of €15,000 euros (EUR) to its supplier in Spain, the owner could wait until he receives an alert about a preferred exchange rate of £1 pound (GBP) = €1.163 EUR. When he receives an alert for this exchange rate, he could go to his online FX account and secure the latest rate. If he is able to secure the same rate he is alerted to, he can send a payment of £12,903 GBP, which equates to about €15,000 EUR.

When a business takes steps to understand the legal and cultural nuances of foreign employee payments, as well as integrating data systems, it can simplify the process of paying foreign employees.

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